Hourly cost contracts

Article
Feb 1, 1998

Hourly Cost Contracts

A new-wave maintenance approach comes of age

By Greg Napert

February 1998

If you spend any time at all around turbine aircraft, you've probably heard the term "power-by-the-hour®" mentioned at least once over the last few years. The term, which has been around for 15 plus years was actually coined by Rolls-Royce when it first offered the program on its Viper engine.

Although hourly cost maintenance programs have traditionally been associated with engines, several of the airframe manufacturers now offer hourly cost maintenance contracts on the airframe, engine, or airframe/engine combination.

What are hourly cost contracts?
Stated in the simplest terms, these contracts involve nothing more than estimating the cost of maintenance over a period of time, and dividing that cost into monthly payments.

"The value of these programs is twofold," says Rick Haskins, president of Jet Support Services Inc. (JSSI®). "First of all, in this day and age, an aircraft with an hourly maintenance program on it will sell faster and for more money — it's a fact. They sell for an average of 7 to 14 percent more. It brings clarity to the issue of the value of the aircraft or engine. If you include the residual value of what you get out of the airplane when you sell it, then the program can be cheaper than maintaining the aircraft outside of one of these programs."

From our research on the subject, we discovered that there are four basic types of hourly cost programs: parts or labor only coverage from the manufacture, nose-to-tail coverage, independent contract provider coverage, and maintenance/overhaul facility coverage.

A couple of things stood out when reviewing the contracts — these programs vary widely from company to company and even from individual contract to individual contract. Make it a habit to always contact the service provider before beginning maintenance on an aircraft enrolled in an hourly maintenance contract.

Additionally, all of the companies reviewed had provisions in the contract which restrict discretionary removals. If the customer wants to remove or replace something and it is not supported by the maintenance program, they will likely be charged accordingly.

Following is a random sampling of each type of program.

Parts coverage
Cessna Parts Distribution provides a somewhat unique parts-only hourly contract for Cessna Citation Jets. It has taken a unique approach to
coverage when compared to other programs — it wants to lower the cost of maintenance for the Citation Jet through their program.

Jack Stiffler, director of Citation spares, says, "We (ProPartssm) are the customer's advocate within Cessna for reduced operating cost, and we put a great amount of effort into understanding what these airplanes are doing and attacking direct operating costs."

Fred Parsons, manager of sales and warranty for Citation Spares, says, "What we tell the market is that the cost will be equivalent to a normal aircraft in the fleet maintained in a prudent manner by good mechanics using good decisions," says Parsons.

To back this concept, Cessna offers an efficiency bonus to encourage keeping costs down. If the customer uses less in parts than is budgeted for in the program, 60 percent of the dollars saved will be returned to the customer.

Cessna's approach to parts replacement is to supply new exchange or repair parts as they see fit. Stiffler says, "We generally supply exchange because that gives us instantaneous parts availability, plus it's less costly than new. However, the customer can choose to have his component repaired if they have the time. By doing so, the cost savings would be credited to their account."

"The program covers all parts required for maintenance and repair of the aircraft to include consumables. The only thing not covered, explains Stiffler, is interior wear items such as seat fabric and carpet and plating and paint. The exterior paint on our new aircraft is covered by a Cessna warranty."

Current aircraft covered include the Citation II beginning with Serial Number 624, the Citation III/650 (which includes some of the oldest aircraft on the program), the Citation V and V-60, VIs and all the Citation VIIs.

If it's not enrolled when the aircraft is new, Cessna requires an aircraft survey be conducted by its Citation Service Center organization and charges an enrollment fee.

Cessna allows some flexibility as to where the operator has their maintenance performed, but they try to encourage the operator to bring the aircraft to a Cessna-authorized facility. Regardless of where the maintenance is being performed, the parts are covered in full. Parsons says, "If the customer has his own maintenance capability or if he goes into a service center or FBO, the parts coverage is always there."

Other key points of Cessna's program include:

• Parts must always come from Cessna. This ensures full compliance with all the regulatory issues and traceability of the parts and guarantees the customer is fully protected.
• The program focuses on material only and provides flexibility to the end user to use any qualified source of maintenance labor.
• An optional program is available for the Citation Jet called ProServicesm, which covers labor. The program is available only to new delivery Citation jets and is only offered in conjunction with using the Citation Service Center organizations.
• An optional program also available for engine parts coverage called PowerAdvantagesm. The company currently has two PowerAdvantagesm programs available, one to cover the Pratt & Whitney engines and the second to cover the Williams or Rolls-Royce engines. The program covers material only and does not cover labor. When the engine comes up for an overhaul, the overhaul is done by the engine manufacturer. This program does not
include life-limited components for engines — a feature which Cessna says keeps the cost of the program significantly below any of the OEM engine programs.

Nose-to-tail coverage
One of the newest types of hourly maintenance programs in the industry involves what is referred to as "nose-to-tail" coverage.

James Lorentzen, Gulfstream Aerospace's ServiceCaresm sales manager, says the company is the first in the industry to offer such a comprehensive program.

The program is administered by Jet Support Services Inc., a company that had a history of providing these types of contracts on engines.

Lorentzen explains that Gulfstream's service plan is currently offered on new GIV-SPs and GIV-SPs delivered within the past year with less than 1,000 hours. The program will soon expand to include new Gulfstream Vs and existing GIV and GIV-SPs. The contracts term is 10 years with provisions to transfer if they sell the airplane before the 10-year anniversary date.

Lorentzen says these provisions allow the customer to either transfer the program with the aircraft on the pre-owned market, or they can transfer the remainder of the program to a subsequent Gulfstream purchase for themselves.

Gulfstream's plan calls for an approved Gulfstream maintenance facility to perform the major scheduled maintenance. "From a scheduled maintenance standpoint, the maintenance will principally be done at one of the three Gulfstream Service Centers: Savannah, GA.; Long Beach, CA.; or Brunswick, GA. We will use our authorized service centers such as Chrysler Pentastar in Michigan when the schedule allows," says Lorentzen.

"In order to maintain control over the program, Gulfstream determines where the aircraft gets maintained. However, we will accommodate the customer as much as possible. For instance, if a customer is based on the east coast, it would make sense to have the aircraft come to Savannah or Brunswick." The company also provides provisions for unscheduled maintenance. Lorentzen says, "You can't control where the aircraft breaks down, so we have to allow for maintenance at these facilities and then reimburse those repair facilities for the maintenance.

Other features of Gulfstream's program include:

• Allows the operator to do a certain amount of the hourly and calendar maintenance spelled out in Chapter 5 of the aircraft maintenance manual.
• Reimburses 60 percent of Gulfstream's labor rate for labor the operator performs themselves and Gulfstream's labor rate for maintenance performed at Gulfstream, at an authorized facility, or any other repair
facility that does maintenance for the operator.
• Requires customers to purchase parts from Gulfstream. Gulfstream
uses overhauled or repaired components for this program. It uses new only if they don't have overhauled or repaired parts available or if parts are beyond economical repair (BER).
• Program includes all consumables for normal aircraft operation.
• For engine parts and service, the program currently uses Rolls-Royce Canada for its preferred engine maintenance vendor.
• Pricing is based upon scheduled maintenance defined in Chapter 5 of the aircraft maintenance manual and unscheduled maintenance from GIV-SP historical data from the MTBF reports.

An independent hourly maintenance provider
JSSI® is the administrator of the Gulfstream ServiceCareSM program. In addition, the company has teamed with Dassault Falcon Jet Corp. to
offer the Falcon FirstSM program which provides comprehensive nose-to-tail maintenance protection for newly purchased Falcon 2000, 50EX, 900B, and 900EX business jets. The program covers all costs associated with scheduled and unscheduled maintenance.

Although the Gulfstream ServiceCare and Falcon First are JSSI's first venture into nose-to-tail maintenance programs, the Chicago-based company has achieved an extensive track record in the managing turbine engine maintenance.

One of the unique characteristics of the JSSI hourly cost programs is their flexibility. JSSI provides coverage for virtually any turbine engine, regardless of age. This gives operators with mixed fleets one single program provider for all their engines.

Haskins says, "There really aren't any engines that we won't consider for the program. We have commercial engines such as JT8s and JT9s, as well as APUs."

Another distinct aspect of the JSSI programs is that they have stationed maintenance professionals throughout the United States and Europe to oversee engine work and monitor customer accounts.

The company also allows complete flexibility when it comes to deciding who performs the maintenance work. Customers can choose virtually any maintenance facility, as long it is FAA or OEM authorized. "If the operator is qualified and approved by the manufacturer to do their own maintenance, we will also allow that and we will reimburse them for their expenses. Ninety-nine percent of our customers, however, have their work done at service centers," says Haskins.

JSSI also offers operators flexibility in how they enroll in the company's programs. After paying a fixed enrollment fee, a "Pre-induction Diagnostic Survey" - a thorough examination of each powerplant - is conducted. At that point, the operator can pay a lump-sum amount, to account for hours already flown prior to enrolling in the program, or they can enroll in the Pro Rata Program. Under this option, the operator shares in the cost of upcoming scheduled maintenance events as well as life-limited components.

Other features of JSSI's engine programs include:

• Allows flexibility for where the customer purchases parts and offers its services to help locate parts.
•Tries to arrive at a joint decision with the customer over which types of parts are used —new vs. overhauled, vs. repaired.